Low levels of investment activity are keeping credit growth moderate

Taavi Raudsaar
Taavi Raudsaar
Economist at Eesti Pank
  • The ability of companies to access financing is aided by the profits built up earlier, favourable financial positions, and good access to bank lending
  • Household purchasing power and capacity for saving increased as incomes rose and prices fell
  • Households remain careful in their borrowing
  • The stock of domestic bank loans issued to companies and households will increase by 5–6% in 2016 and 2017, which is about the same amount as nominal GDP

The access of companies to financing remains good and their ability to get funding is not restricting investment significantly. Their ability to access financing is aided by the profits built up earlier, favourable financial positions, and good access to bank lending. Large and foreign-owned companies in particular can also access funds from abroad. Loan servicing costs are low because base interest rates are very low.

Estonian companies have little need of capital as investment is lower than in previous years. This is keeping equity investment and borrowing moderate. The portfolio of loans and leases issued to companies by banks operating in Estonia grew by around 5% in 2015. Borrowing by retail companies and industrial companies increased faster than that by companies in other sectors. In recent years banks have been quite conservative in financing real estate development, so real estate companies have financed themselves more than before with foreign capital and especially with loans taken from other Estonian companies.

Household finances improved in 2015. Household purchasing power and capacity for saving increased as incomes rose and prices fell. Not all the additional financial resources were consumed, and so household deposits grew by 7% during 2015 to 5.7 billion euros. This growth once again came mainly from large deposits, but there was also an increase in the number of households with deposits. Although the financial savings of Estonian households have increased, they remain relatively small compared to those of other euro area countries.

Households remain careful in their borrowing. Although borrowing activity has increased somewhat, loan growth is still lower than growth in incomes and financial savings. The loan and lease portfolio of households grew by 4.2% in 2015. Demand has grown most for housing loans and car leases.

Both corporate and household credit growth will remain moderate in the coming years. Growth in loans will be supported by the expected growth in demand and in investment activity. The most recent Eesti Pank forecast expects the stock of domestic bank loans issued to companies and households to increase by 5–6% in 2016 and 2017, which is about the same amount as nominal GDP.

Interest rates continue to favour borrowers, and the capacity for lending of the banks operating in Estonia remains good. This is aided like before by high levels of capitalisation and profitability and by favourable financing conditions. Competition between banks in the corporate loan market is quite tight and the interest rates on loans fell in 2015 as base interest rates and interest margins both declined. Competition over housing loans to households weakened last year though and the number of banks active in the market fell, which was also reflected in increased interest margins.


Additional information:
Ingrid Mitt
Public Relations Office
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